Which statement best describes ORSA?

• A. The internal assessment of solvency need based on the risk profile and the processes to identify, assess, monitor, manage and report risk to determine own funds
• B. A public disclosure document for Pillar 3
• C. An external audit of capital adequacy
• D. A pricing model for insurance contracts

Answer: (A)

ORSA is the insurer’s own internal process to assess solvency needs in light of its unique risk profile. It brings together identifying and understanding risks, evaluating how they affect the ability to meet obligations, monitoring and managing those risks, and reporting to governance. The aim is to determine the level of own funds required beyond the standard capital requirements, and to ensure there is enough capital under both normal and stressed conditions. This internal, forward-looking view uses the company’s risk management framework and projections to inform capital planning and risk appetite. That makes the statement describing ORSA—an internal assessment of solvency needs based on the risk profile and the processes to identify, assess, monitor, manage and report risk to determine own funds—the best fit. Public disclosures under Pillar 3, external audits of capital adequacy, and pricing models are different aspects of regulation or actuarial work and do not define ORSA itself.